How Does Leasing A Car Work
Leasing a car is a way of hiring a brand-new vehicle long-term, usually for around 2-4 years. You’ll pay an upfront cost, followed by fixed monthly rentals before returning it to the finance provider at the end. At no point will you own the vehicle.
The company you lease from will ask you to specify how many miles you want to drive each year and you’ll have the option to choose a maintenance package which will cover routine maintenance on wear and tear issues for an additional cost.
That’s a very brief overview of the concept, but how does it all work? Discover our guide to find out how vehicle leasing works.
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What is the car leasing process?
Besides just choosing a car you want, there’s a more few steps involved when you go to lease a vehicle. Here are the six steps you need to know about, from enquiring on your ideal motor to having it delivered to your door, and then what to do at the end.
1. Decide where to get the car from
With competition increasing in the car leasing market, it’s no longer just individual online providers that offer the service. There are now many major manufacturers such as Ford, Honda and Volvo offering lease deals for its vehicles. They do this through three types of dealerships – franchised, independent and supermarkets. A franchised dealership will offer new and used cars, whereas an independent dealer and car supermarket will only offer used models.
Deciding between a dealership or provider is important for ensuring that a contract works out in your favour. Use our table below to help you decide if provider or dealership leasing is right for you.
2. Choose a vehicle
Once you know where to get a lease car from, you then must decide what type of vehicle you need or want. The chances are that if you’re going through a dealership, you already have a pretty good idea about what it is you’re after.
However, the great thing about leasing is that it’s available for all major manufacturers and accompanying vehicles. Whether you want a hatchback, family-friendly SUV, luxury saloon, sports car or off-roader, there’s something out there for every type of driver.
Leasing comparison websites such as ours allow you search for a new car using the manufacturer, your monthly budget or through our very best deals on popular models, known as ‘special offers’.
Remember: All vehicles listed on our platform are brand-new, meaning they come with the full manufacturer’s warranty throughout your contract. Road tax and free UK mainland delivery is also included.
After you’ve found your ideal car, you can compare prices from multiple providers, all of which are regulated by the British Vehicle Rental and Leasing Association (BVRLA) and the Financial Conduct Authority (FCA).
Before enquiring on a deal, make sure you’re happy with the contract length, initial payment amount and the annual mileage. These factors will impact how much you pay for the car, but we’ll talk about that in more detail now.
3. Configure your deal
The way car leasing works means that each deal will require you to make stipulations in the contract, more specifically how long you want the vehicle for, the miles you’ll drive each year and what payment you want to make as an initial rental.
Finance providers will usually give you the option of a 24-, 36- or 48-month contract, although shorter and longer agreements are offered by certain companies. Your monthly lease payments cover the depreciation of your chosen vehicle over the duration of your agreement, so the less time you have a car for, the higher the rentals will be.
In terms of annual mileage, this often starts from 8,000 miles and goes up to 30,000 miles. You’ll notice that choosing a lower annual mileage cap makes your monthly payments cheaper but be sure to choose a number which accurately reflects the amount you drive. Otherwise you will be charged an excess mileage fee at a rate per mile, the amount of which will depend on the provider and can be as much as 30p per mile.
A non-refundable initial rental (also known as an ‘initial payment’) is also a necessary part of any lease deal, though the amount can be flexible to fit around your budget. This upfront cost works out as a multiple of the monthly payments, with one, three, six- or nine-month options available. It goes against the total price of the contract for the vehicle, so a larger initial rental will make the remaining instalments cheaper.
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4. Consider whether you need a maintenance package
Because a finance provider is the registered owner and keeper of any car you lease, it’s your responsibility to make sure it’s kept in good condition throughout your contract.
The BVRLA have a ‘Fair Wear and Tear’ standard which all leasing companies use as guidance when assessing any damage on its vehicles, which is most important when it comes to returning your car. But don’t worry, you won’t be charged for normal wear and tear issues which reflect regular use.
A maintenance package will be an option you can select for most lease agreements. It can be added at the point of configuration or mid-term by the provider and will cover routine servicing and repairs for issues. As long as they weren’t caused as a result of driver error or an accident, in which case you will need to pay to have these fixed at an approved garage.
You may not need a maintenance package if you’re confident you’ll look after the vehicle or only have a shorter lease term (e.g. two years). With the manufacturer’s warranty covering you for unexpected mechanical and electrical faults, it may not be necessary. However, for a four-year agreement it can come in handy, especially as it covers the cost of an MOT after the vehicle passes it’s third birthday.
For more information about maintenance packages, see our complete guide to them here to discover if it’s worthwhile.
5. Arrange insurance
Most vehicle leasing agreements won’t include insurance within the monthly rental price, unless they’re advertised as being ‘complete care’.
So, it’s up to you to insure the car as you would with one you’ve bought. The only difference is that a finance provider will always require you to take out a fully comprehensive policy, which covers you for damage to you and your vehicle, as well as other drivers and their vehicle. Protection for any passengers and anyone’s property is also included too, which gives you and the finance company leasing you the car complete peace of mind.
Optional GAP (Guaranteed Asset Protection) insurance will pay the difference between what your main insurer pays out and any outstanding finance owed to the finance provider if a car you’ve leased is written off too. Although this is unlikely going to happen to you, it is fairly common and therefore GAP insurance can prevent a large unexpected bill reaching you if the vehicle is written off.
6. Keep on track with the monthly payments
Leasing is essentially a credit agreement whereby you’re borrowing the full amount of a vehicle from the funder, on the condition that you’ll pay monthly instalments to use it for an agreed period (and distance).
For this reason, it’s important you make your monthly payments on time, otherwise your credit score is likely going to be negatively impacted. Beyond this, there could even be late/missed payment charges from the finance provider if no effort has been made to contact them about a change in circumstance, for example. Ultimately, the provider has the right to repossess the car if you fail to make multiple payments.
It shouldn’t come down to this, so long as you phone the finance provider if you suspect that you can no longer afford the lease payments.
Solutions can be worked out on a case-by-case basis, with some providers potentially offering the following:
- Transfer a contract
- Early termination (a fee will apply)
- Change lease terms (e.g. extend the contract length to make monthly payments cheaper)
- Temporarily freeze monthly payments
Remember: These options will be at the discretion of the finance provider, so be sure to contact them first.
7. Return the vehicle in good condition
Your provider will most likely contact you about scheduling an appropriate day for an inspection agent to come and collect your vehicle. However, it will be your responsibility to arrange this if they haven’t already.
Make sure it’s a day when you’re at home so that you can sign off the vehicle inspection sheet. Also, once the date is set, be sure to thoroughly check the car for any obvious damage around 10-12 weeks beforehand. This way, you’ll have plenty of time to have any problems fixed and avoid any charges for extensive damage which could be deemed beyond normal wear and tear.
To find out more about car leasing, head over to our guides page for all the information you need.
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